The bankruptcy laws in the United States are intended to provide relief to the honest, financially over-extended consumer; the bankruptcy laws allow a person to shed financial problems and start anew. The question this consumer must ask, does a bankruptcy filing make sense or are there alternatives that make more sense? This article is intended to frame one critical issue that must be considered.
Our friends at the Law Office of Michael C. Fallon can tell you that the most common form of bankruptcy is a Ch 7. These are referred to as a “straight” bankruptcy or a “liquidating” bankruptcy that is found at chapter 7 of the United States Bankruptcy Code. The objective in such a filing is to obtain the elimination of debt through an order of the bankruptcy court that is called the Chapter 7 Discharge of Debtor. An appealing remedy for a person that struggles to make ends meet, but at what cost? Will you lose your home? What about your car or the bed you sleep on?
When a chapter 7 is filed all property owned by the consumer comes under the control of the Bankruptcy Court and the chapter 7 trustee who is appointed to oversee the filing. The property includes the home that is owned or being purchased, clothing, jewelry, furniture, electronics, etc. The role of the chapter 7 trustee, as the representative of the Bankruptcy Court, is to determine if this property can be sold to pay the claims of creditors. In 95% (or more) of the chapter 7 cases, this property will not be sold because, under the bankruptcy laws, the property will be “exempt” (or protected) from a forced sale by the chapter 7 trustee.
The question of what property can be claimed exempt is answered by looking at both the Bankruptcy Code and the laws of the state wherein the consumer resides. For example, in some states, a consumer who owns a home can, in many instances, protect more than $600,000 of equity in the home (the difference between the fair market value of the home and the mortgage secured by the home); $7,500 of equity in an automobile can be protected, as can ordinary and necessary household goods and furnishings, and many other kinds of property. In some states, Florida and Texas for example, there is no limitation on the equity in a home that can be protected.
If one is considering bankruptcy, it is critical that there be a thorough analysis of what you own and what you can protect. This analysis should be completed by an experienced bankruptcy attorney in the state where you reside. A Google search may be a good place to start, but reliance on Google, without the final word coming from experienced bankruptcy counsel, is a mistake you do not want to make. Once this analysis is complete you are ready to move on to the next step in the process.